China's Mixed Export Data Leave Markets Guessing on Yuan
Chinese exports rose strongly in January from a year earlier but tumbled from December, giving ammunition both to those who advocate a stronger yuan and those who say Beijing should play safe and keep its currency steady.
Economists said it was tough to interpret Wednesday's data because of the low base of comparison in January 2009, when a slump in trade due to the global financial crisis was magnified by the timing of the country's Lunar New Year holiday.
With the holiday falling in February this year, China effectively worked one extra week this January than in 2009 -- providing a springboard for a 21.0 percent rise in exports over the year-earlier month and a record 85.5 percent surge in imports.
The recovery in exports, if sustained, could intensify pressure for yuan appreciation, which would dent China's competitive edge in global markets.
China has effectively frozen the exchange rate around 6.83 per dollar since mid-2008 to help its exporters and cement financial stability. It has gained global market share as a result and supplanted Germany last year as the world's biggest exporter of goods.
But risk-averse policymakers can also point to a 16.3 percent drop in January's exports from those in December to justify resistance to U.S. President Barack Obama's renewed demands for a rise in the value of the yuan, which Washington believes is unfairly undervalued.
"A single month's good export performance will definitely not increase the chances for the government to start resuming yuan appreciation, which I don't expect will happen until the second half," said Xu Jian, an economist at China International Capital Corp in Beijing.
Indeed, offshore non-deliverable forwards (NDF) implied markets expect the yuan to rise against the dollar 2.26 percent in the next year, down from 2.5 percent on Tuesday.
Momentum
Weakening import momentum, moreover, could reinforce investors' worries that China's clampdown on bank lending is weighing on domestic growth, and by extension depriving the global economy of its strongest engine since the financial crisis struck in late 2008.
The Australian dollar briefly dipped as traders reacted to the month-on-month declines in exports and a 15.1 percent drop in imports on the month. The monthly changes are unadjusted.
"January's data release complicates the economic policy picture for the Chinese government," said Tom Orlik, an analyst in Beijing with Stone & McCarthy.
"A more fragile recovery in exports will tempt the government to keep the stimulus taps turned on for a while longer."
The year-on-year export and import increases were broadly in line with expectations, although the resulting $14.2 billion trade surplus fell short of forecasts of a $19.5 billion reading.
Data from around Asia, though broadly strong, has also flashed mixed messages. Taiwan's exports in January jumped 75.8 percent from a year earlier. South Korea's overall daily exports last month fell at the fastest monthly pace in a year but shipments to China rose 98.9 percent from a year earlier.
Ammunition
Even as China became the world's export champion last year, its trade surplus dropped 34 percent to $196.1 billion as stimulus spending led imports to decline at a slower rate than exports.
A recovery in global demand could drive China's year-on-year export growth to 40 percent before long, said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.
"That will provide critics of China's yuan policy with ammunition," he said.
China has rebuffed calls for currency strengthening over the past few months, with the latest broadside published in a front-page editorial in the official China Securities Journal on Wednesday, contributing to the pull back in NDFs in yuan appreciation expectations.
"Given the current situation, the conditions are not right for big yuan appreciation in the first half at least," it said. the paper said.
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